The S&P 500 closed Thursday at 1,909.57, down 4.1 percent from its July 24 record high. The index stood at 1940.27 Monday morning.

"Now a rebound is underway in my opinion," Faber argues. But he warns against expectations of an explosive rally. "I doubt we will make new highs. And if we make new highs, it may be just with a very limited number of shares, because the technical damage is quite significant."

For the long term, returns will be limited because valuations for stocks, bonds and real estate are "inflated," he explains.

"I think the returns will be disappointing."

While the markets haven't reacted much to new developments in Iraq, that could change, Faber states. "If ISIS makes a move on Saudi Arabia, then markets will react slowly."

Meanwhile, individual investors appear to be growing worried about the stock market.

An American Association of Individual Investors survey of its members for the week ended Aug. 6 shows that 38.2 percent of them have a bearish view of the stock market for the next six months. That's the highest level since last Aug. 22 and is up from 31.1 percent a week ago.